Posted by: Josh Lehner | May 24, 2017

States at Full Employment, A Prime-Age EPOP Story

The key economic question economists are trying to answer today is whether or not the U.S. economy is at full employment. Given it is more a concept then a hard calculation, you look for signs in the data that suggest the economy is there. In terms of jobs and the unemployment rate, there is no question the data do suggest this. However, at least nationally, wage growth is still relatively slow, albeit picking up some, and inflation remains consistently below target.

Here in Oregon we’re checking more of the boxes than the U.S. overall. Not only have we seen stronger wage gains, but we got the labor force response in terms of rising participation rates. Furthermore, now that the labor market is tight, we are seeing slower job growth which is also expected. Again, I don’t think we’re quite there just yet, but in looking across the nation it’s clear that Oregon is closer than most states.

Speaking of the other states, our office and a host of economists across the region are currently in Bend this week for the annual Pacific Northwest Regional Economic Conference (PNREC). I know, it’s a hard job at times. Mark is giving the U.S. Outlook talk so we’ve been digging into the region and other states a bit more. Similar to the national data, the vast majority of states are currently at or near a record-high number of jobs and the typical state’s unemployment rate is back down to where it was prior to the Great Recession. However, fewer states are fully healed in terms of deeper measures of labor market health.

Specifically, when it comes the share of the prime working-age population that actually has a job, those between 25 and 54 years old, just two — two! — states are back to where they were last decade, let alone the late 1990s.

Focusing just on the prime working-age population is a really good way to strip out the impact of the aging demographics. This age group also has the highest labor force participation and employment rates. And by looking at rates, or shares, you control for any population growth at the same time. Right now, across the nation the employment rate (or employment-population ratio, or EPOP for short) for this group is 2 percentage points lower than prior to the Great Recession. Both Adam Ozimek of Moody’s Analytics and Nick Bunker of Equitable Growth have been highlighting these trends in recent years as a key barometer of the economy. In fact, Adam was just on Bloomberg TV earlier this week. He pointed out some of his recent research showing that there is still room to run based on the prime-age population and also the fact that there has been a stronger labor force response in states with faster wage growth. Sound familiar?

The map below shows how each states’ prime-age EPOP compares today relative to their pre-recession peak employment rate. Just two states have a higher EPOP today and only a handful of other states are relatively close, Oregon included. The vast majority of the states have considerable room for improvement.

Note: The state level data comes from the household survey which can be noisy due to its relatively small sample size. This can especially be true once we parse the data further and focus just on the prime-age population. Take the specifics with a grain of salt.

Since we’re at PNREC, I wanted to focus on the region for a minute which I think is illustrative of what the nation is facing as well. The charts below compare the employment rate, or employment-population ratio across the entire age spectrum for the core PNW states. We previously did this just for Oregon and found that the employment rates for all ages in Oregon were back to pre-Great Recession rates. Our neighbors’ patterns differ.

Idaho is largely back except for employment rates for Idahoans in their 40s and 50s. This is exactly where Oregon was in 2015. The concern here is that this gap may be structural based on skills or geographic mismatches or age discrimination in the hiring process. Given Oregon’s middle-age gap has now closed, structural issues may be less of a concern than initially feared. As the labor market gets tight firms must cast a wider net when hiring. They must dig a bit deeper into the resume stack and hire those with an incomplete skill set or a gap in their resume due to long-term unemployment and the like. That’s happening nationally and here in Oregon. I expect it to happen in Idaho too. Montana and Washington are seeing some of these same trends, albeit their prime-age EPOP isn’t back nearly as much. Montana was making progress until the oil crash in late 2014 set them back, along with the other energy states and Canadian provinces. 

Finally, for those interested in how your state or region is doing, check out the slides below. They include comparisons across a host of labor market indicators including prime-age EPOP.

 

Posted by: Josh Lehner | May 16, 2017

Oregon Economic and Revenue Forecast, May 2017

This morning the Oregon Office of Economic Analysis released the latest quarterly economic and revenue forecast. For the full document, slides and forecast data please see our main website. Below is the forecast’s Executive Summary.

The U.S. economic expansion marches on, as does Oregon’s. Next month marks the eight anniversary since the end of the Great Recession, making the current expansion the third longest since World War II. The good news is nearly all signs point toward continued growth in the near-term. Even so, there do remain significant risks to the outlook, particularly the uncertainty of federal policy.

In recent years Oregon’s economy has been among the ten fastest growing states nationwide. That said, Oregon job growth has slowed considerably in recent quarters. While this slowdown has been built into our office’s outlook for years, the severity of the slowing has been more than expected. No longer is the state adding jobs at nearly twice the national rate. Over the course of the 2017-19 biennium, Oregon is expected to continue to see healthy jobs gains – a bit more than 3,000 per month – and enough to keep pace with a growing population.

It is quite clear Oregon’s growth has slowed, however, the rest of the economic and revenue data suggest the employment numbers may overstate any weakness. Oregon’s economy is hitting the sweet spot, which only happens at or near full employment. Wages for workers are rising faster. In a tight labor market, firms must cast a wider net to fill openings. As such, job candidates who were previously passed over when unemployment was high are now finding work, this includes middle-aged Oregonians, the long-term unemployed, and the like. Importantly, these factors combine to generate strong household income gains in recent years. As such housing affordability has largely stopped getting worse, and poverty rates and needs-base caseloads are falling.

As the peak season for income tax collections winds down, it has become clear that Oregon has enjoyed a good year. Although revenue trends are not as strong as what was seen earlier in the economic expansion, Oregon and its Western neighbors continue to lead the way in terms of revenue growth. A large majority of states are dealing with disappointing revenue growth that has failed to match their budget projections. In Oregon, revenue growth has outstripped expectations, putting our unique kicker law into play.

Although revenue growth is still healthy, the slowing pace of Oregon’s expansion has become evident in tax return data just as it is has in the jobs data.  Income growth has been cut in half over the past two years, with slowing across a wide range of income types. While still growing for now, business, retirement, investment and labor income have all decelerated rapidly.

With increases in the outlook for personal income taxes, estate taxes and lottery sales, net General Fund resources are up $370 million relative to the March forecast.  Excluding corporate taxes, General Fund revenues are now 2.4% above the 2015 Close of Session estimate. If this holds through the end of the biennium, an income tax kicker of $408 million would be triggered for tax year 2017.

Although the May outlook calls for a personal income tax kicker, it is not a sure thing. Large swings in the forecast between now and the end of June have been commonplace in past years. In fact, if revenue forecast errors are distributed on a bell curve, the forecast would be expected to decline by more than the $70 million needed to fall below the kicker threshold in one out of every three years.

See our full website for all the forecast details. Our presentation slides for the forecast release to the Legislature are below.

Posted by: Josh Lehner | May 9, 2017

Zombie Unemployment Rate Claims

Oregon currently has a record low unemployment rate, with good data going back to 1976. It’s true that this likely overstates the strength in the economy, however we know the labor market is tight and Oregon is at or near full employment. I think we’re close but not there yet, however you can make a reasonable argument we are.

What is not true are those claiming the unemployment rate is low because it only counts those receiving unemployment insurance benefits. This is clearly a zombie idea — something that should die in the face of all evidence and data, but somehow manages to stumble forward forever. The claim is made in good times and in bad, but is equally misguided. When the unemployment rate began declining following the Great Recession, the claim was used to say that it only reflected individuals who exhausted their benefits and gave up looking. While this certainly applied to some individuals, the return of job growth was the key driver in those initial unemployment rate declines.

So why is it a zombie idea? The unemployment rate comes from the household survey, where they ask if individuals have a job, and if not, whether they have looked for one recently. If you say you do not have a job but are looking, you count as unemployed. Whether or not you receive unemployment insurance benefits is not a deciding factor here at all. That said, those who receive benefits are generally unemployed, but not all unemployed receive benefits. You can see this in the chart below.

Over the past 3-4 years, when it comes to unemployed Oregonians, the number of new entrants into the labor market looking for work has been equal in size to the number of Oregonians who have lost their jobs but want another one.

Now, it is always true that the longer you remain unemployed, the lower the probability of finding a job. In fact, the long-term unemployed are more likely to give up looking for work then to find a job. However that relationship is getting better in a stronger economy as the job finding rates are picking up. Note that the chart below is based on U.S. data.

This pattern, where longer-term unemployed are more likely to give up looking is a huge concern and the longer and deeper a recession, the higher the possibility or probability of permanent damage. The fact that the U.S. economy has been operating below full capacity for much of the past 17 years is a big deal and likely has resulted in some permanently lower labor force participation rates.

The best way to test whether or not this is true, is to run a strong economy. In a tight labor market, firms not only must compete on price (wage) to attract and retain the best workers, they also have to cast a wider net when looking to fill positions. Right now, the Oregon labor market is tight. Firms are generally no longer flooded with job candidates with sparkling resumes. The state’s Employment-to-Population ratio for all prime-age cohorts is back to where it was in 2007. As such, the vast majority of people who want a job, have a job, hence the low unemployment rate. In casting that wider net, employers are hiring individuals who were previously long-term unemployed, have an incomplete skill set that requires more on-the-job training, and the like. Overall these are very good dynamics to see in the economy. But they generally only happen at or near full employment.

Posted by: Josh Lehner | May 5, 2017

Graph of the Week: Boomers and Millennials

Articles bemoaning the habits, trends and beliefs of younger generations are a time honored tradition. The Millennials are certainly no exception. As they continue to age into adulthood, Millennials will reshape many aspects of society and the economy. However probably less than many of the so-called think pieces predict. There is a reason our office calls the 25-34 year age group the root-setting years. It is when most individuals settle down, begin their careers in earnest, get married, buy a house and have kids. While Millennials may be doing this a couple years later than past generations, they are still following the same general life cycle of behavior.

All that said, when it comes to demographics the Boomers were different. We can lose sight of this fact today now that Millennials and Gen Z or whatever we end up calling those after the Millennials are similarly large in size. However back in 1980, Boomers were essentially in the same age groups as Millennials today, and they represented a significantly higher share of the population. As such, while trends and behaviors of Millennials will reshape society, the marginal change is unlikely to be as large.

Note: There is a standard definition for Boomers. They were those born between 1946 and 1964. No such standard exists for Millennials. Most analysis use somewhere in the 1980-1983 to 1997-2000 range. I use 1981-2000. That does mean Millennials get one additional year in their group, but it does not impact the analysis much. That extra year is worth about 1.2% of the population distribution. 

Posted by: Josh Lehner | April 27, 2017

Oregon EPOP by Age

As I mentioned the other day, the share of the working-age population here in Oregon with a job has returned to where it was prior to the Great Recession. This is good news, particularly since the last time we took a look at employment rates by age there were a few missing pieces. Specifically, what we saw were lower employment rates for Oregonians in their 40s and 50s. The concern was the impact of long-term unemployment, job polarization, and age discrimination in the hiring process may leave a permanent gap in employment opportunities. As I was updating some of this data recently I noticed that this gap no longer existed. The share of middle-aged Oregonians with a job has picked up. This is highly encouraging. You can really see the difference between the gray and red lines in the chart below.

This next chart shows the same data, but in a different way. This is probably a bit more intuitive to see 2007 and 2017 employment rates standing side-by-side. Note that the data is noisy and based on relatively small sample sizes, so differences of half a percent are negligible to the story the data is telling.

For those wanting to see how these employment rates have changed over the entire business cycle, this third graph is for you.

The tight labor market is likely driving these results. Not only does a tight market mean businesses must compete more on price (wages) to attract and retain the best workers, businesses must also cast a wider net when looking for potential employees. Firms may need to take a bigger risk in hiring someone without the perfect resume, or has an incomplete skill set. On the job training becomes more important in a strong, but tight, labor market. The combination of more employment opportunities and rising wages is also pulling workers back into the labor market. Participation rates are rising and the number of individuals who report they aren’t even looking for work one month but have a job the next month is higher today as well. The tight labor market which drives these processes is expected to continue moving forward, at least until the next recession.

Finally, just because we are back to 2007 employment rates, it does not mean the economy is necessarily all the way healed. There is still likely room for further improvements, such as reaching employment and participation rates seen in the late 1990s. Here the concern is that the gap between today and the late 1990s may be permanent. The damage done by an underperforming economy for much of the past 17 years may be too much to overcome. As our office’s outlook shows, we do think some of this gap is structural, and/or permanent. Really the only way for us to know for sure is if the expansion and the tight labor market continues for another couple of years, at least.

Posted by: Josh Lehner | April 25, 2017

Oregon’s Slower Growth Outlook

The May forecast is fast-approaching. It is the single most important thing our office does, as it effectively sets the revenue estimates and kicker baseline for the upcoming biennium. This week and next we are meeting with our economic and revenue advisors to discuss the outlook and pick their brain for insights into their industries, what their clients are seeing, and the like. Right now, however, I wanted to review where the economic outlook stands today. This may change somewhat after our advisory meetings and as we finalize the May forecast.

Overall, our office is expecting slower economic (and revenue) growth moving forward than what we have seen in recent years. This largely stems from the fact that the economy is currently somewhere near full employment. The unemployment rate is at historic lows. Even if you add back in all of those who probably should be in the labor force but are not looking for a job today, the labor market is tight. Those working part-time but want full-time work is also back down to pre-Great Recession rates. And importantly, the share of the prime working-age population with a job is also back to where it was in 2007, more on this soon.

As such, job growth in the past year has slowed. We are past the cyclical peak seen a couple years ago when the state was adding 5,000 jobs per month and seeing growth rates of 3-3.5% year-over-year. Right now, we are seeing gains of closer to 3,000 jobs per month, or rates of 2-2.5% year-over-year. This is largely in-line with our office’s forecasts and what Oregon needs to keep pace with the growing population. Remember, an economy approaching full employment behaves and grows differently than one digging out from a recession. This relative slowing in job growth is essentially across the board. It is not just one or two industries weighing on the topline. Two-thirds of employment subsectors are seeing slowing growth.

Given tax revenues largely track the economy, expectations for slower job growth translate into slower revenue growth as well. I think this point gets lost in the current budget discussion at times. Of course it is not lost on legislators and budget writers who ask us about this. However, this relative slowing amounts to hundreds of millions of dollars. Depending upon how one extrapolates recent trends, the projected budget hole would be 20 to 40 percent smaller if growth in 2017-19 matched what we have seen in 2015-17.

Now, since 2012 our office has built in this economic and revenue slowdown starting in about 2016. At this point in the business cycle, and with the economy near full employment, it is hard to forecast growth rates to re-accelerate and match those seen a couple of years ago. Importantly, these forecasts have also largely tracked well. That said, they have not been perfect. We had a relatively small kicker in 2013-15, but a kicker nonetheless. We are certainly not yet out of the woods on any potential kicker in 2015-17 either. As such it is important for us to gather input from our advisors as we work to hone our estimates for the upcoming biennium and release the official forecast on May 16th.

Posted by: Josh Lehner | April 18, 2017

2017 Tax Season

Happy tax day everyone! *ducks* Right now, our friends over at the Department of Revenue are buried in pixels and a few paper returns. As FiveThirtyEight’s Ben Casselman showed yesterday, there is a bulge of tax filing activity right at or near the deadline. It takes a week or two to process all of these returns.

That said, what really matters for revenues are the size of payments (or refunds) attached to each of those returns. While there is a steady stream of filers in recent months, the bulk of the payments are still outstanding, or at least have yet to be processed. The former matters quite a bit for DOR workloads, but the latter matters for tax revenues and our office’s forecasts.

At this point we typically have about three-quarters of all refunds issued, but less than half of the payments received. We will know more here in a couple of weeks. Our office’s next forecast is scheduled for May 16th and this is the big one, it sets the baseline for the upcoming budget and any potential kicker calculations*.

* Officially, the kicker calculation is based on what is called the Close of Session forecast. The COS is our office’s May forecast plus any legislative changes made between that outlook and sine die, or when the legislature adjourns.

Posted by: Josh Lehner | April 12, 2017

Causes of the Great Housing Shortage

The housing recovery is still incomplete. Even in the nation’s fast-growing metro areas, new construction is not keeping pace with demand. The lack of supply has created a housing shortage and is well known at this point. What is less discussed are the reasons why we have under-built housing. Given high rents and home prices, why haven’t we seen a stronger supply response to chase those profits? Our office has dug into 5 of the most commonly cited reasons. Our summary is below. A major H/T and thank you to the National Association of Home Builders (NAHB) economic team for their work on many of these issues.

Supply Constraint #1: Confidence

Anecdotal reports and conversations suggest spec development is down. It is possible that builders and developers have lost some of their appetite for risk. If they wait to build until a contract is signed, or close to it, supply will continue to lag demand. However, as Mark said at City Club of Portland, a successful developer by their nature is optimistic. The NAHB Wells Fargo home builder sentiment index is all the way back to previous peaks. As such, it is unlikely that the lack of builder confidence is what is really holding back the market.

Supply Constraint #2: Labor

For years now, a common refrain has been that it is hard to find construction workers and that wages are really high. NAHB reports there is a shortage for a number of occupations. I remember hearing about these shortages back in 2013 and 2014, which, at the time, was a bit hard to believe. Not that it wasn’t true, just that there was clearly slack, and available workers, in the economy. Now? I certainly believe it is hard to find workers, for any industry. The labor market is tight. That said, average wages in the construction industry are well within their historical range, when compared with other Oregon workers. Again, this does not mean there are not labor issues in the construction industry, and there can certainly be skill-specific shortages. But in general, what the industry is experiencing is felt across a wide range of sectors.

Even so, we are hearing that labor costs and bids are really high today. So if it is not showing up in workers’ paychecks, that means it might be showing up as firm profits. Some of this increase could be due to market power and industry consolidation after the crash. Furthermore, we are reminded by our advisors, that even as firm profits are rising again, this is cyclical. These are the same companies that lost their shirts during the crash, and will likely do so again next cycle.

Supply Constraint #3: Land Use

In our office’s presentations around the state, the first reason or theory everyone cites is our state’s unique land use laws. Specifically the urban growth boundary restricts buildable land, thus raising prices and eroding affordability. Our office’s view is that policy matters. When comparing, say, Portland home prices to other large metros, we stand out as being more expensive than most, particularly compared with those of similar incomes. Some of this is likely the long-run effect of our policies. This, of course, leaves to the side any discussion of the reasons why such policies are there in the first place.

That said, our land use laws are not the likely driver behind the low supply and eroding affordability in the past 5 years. The vacancy rate in the Boise MSA is right there with Portland’s and among the lowest in the nation. I have never heard anyone talk about Idaho’s land use laws. Given the underbuilding of housing is not an Oregon-specific issue, using Oregon-specific explanations does not get you very far. UPDATE: Just to clarify. I do think land use laws impact overall prices here in Oregon. I just do not think they are a primary contributor to what has taken place in the past 5 years. Again, the fundamental housing problem is not Oregon-specific.

Supply Constraint #4: Lots

The lack of shovel-ready, or buildable lots is clearly a constraint on the housing market today. Builders nationwide are reporting shortages at an increasing rate. The issue is worse in the West, and in prime locations — so-called A lots — but is still a major and growing concern throughout. Locally, the issue is largely the same, although Oregon’s land use laws can come into play. It is not necessarily the total amount of zoned land — there is supposed to be a 20 year land supply within the UGB. In conversations, what builders really care about is the effective land supply — or the amount you can actually build on in relatively short order. Reasonable people can and do disagree about the assumptions in the former, but clearly the latter is a problem here in Oregon, and across the country.

Overall, the lack of buildable lots results in higher prices and fewer units. However, as Dave Crowe, NAHB’s former chief economist, wrote in 2014 and in 2015, the lack of land is due to tight financing. This means that lot supply, while a major constraint, is still more a symptom than a cause of the eroding affordability and meager supply.

Supply Constraint #5: Financing

The housing bubble and Great Recession was a traumatic experience. In its wake, banks tightened their lending standards — both to developers and home buyers. Some of this was clearly needed and welcomed. However, how tight is too tight?

Earlier this decade, banks loosened standards and increased loans for multifamily projects. The result has been a surge in apartments. This increase in supply is now impacting rents. Concerns of overbuilding apartments and with the economy at or near Peak Renter, banks are tightening multifamily standards again.

However, the Fed’s Senior Loan Officer Survey also shows banks tightening standards for construction and land development loans. Given the lack of buildable lots, this is a big concern. Now is not the time to be pulling back on land development. Luckily, this may not be happening across the board. It certainly is happening for multifamily land development, but NAHB has their own survey of their members’ finances. It is an industry publication with a smaller sample size, so the results should be taken with a grain of salt. That said, NAHB members are reporting that banks are still loosening standards in recent years.

At some point, the proof is in the pudding. Loan volumes to builders are growing again, however remain considerably lower than last decade. Below is my replication of a chart current NAHB chief economist Robert Dietz has been using for years. As he notes, these are stocks and not flows. As such we cannot get a perfect look at the increasing flow of credit, but can see it is clearly happening.

Finance and credit availability is a macro lever that can better explain national patterns than any localized issue can. When it comes to housing market confidence, particularly after the bust, it makes some sense that banks and their regulators are more likely to be once bitten, twice shy. In conversation, banks and credit unions are citing some restrictions on their lending activity and issues with making sure their loan portfolios are balanced. I do not know nearly enough about the inner workings of Dodd-Frank to render judgement, but these topics are part of the discussions we have.

Overall credit availability is a good news – bad news story. The bad news is that builder lending volume is considerably smaller today. It takes a lot of time, effort and money to take a piece of dirt, get entitlements, put in roads, utilities, and the like. The dearth of this activity during the bust, for some understandable reasons, has put a wrench in the development process of bringing new supply to the market.

The good news is that the volume of lending has been increasing at double digit rates for the past three years. The flow of credit has returned. Our office’s main housing advisor has been saying that we can expect to have a single family building cycle, that is has just been delayed a long time. He has been two steps ahead at every point in the housing market and appears to be right about this too.

Overall, I am now more of an optimist than in recent years. The apartment surge is beginning to hold down rents and single family construction continues to increase. We are at or near the housing inflection point. Due to stronger household income gains, affordability has largely stopped getting worse. A larger share of households can afford these higher rents and home prices in an improving economy. Between now and the next recession, affordability is likely to get somewhat better. Even so, as our work on the Housing Trilemma shows, regions face trade-offs between affordability, economic strength and quality of life. That said, stronger supply does help with broad regional affordability. The key is continuing to build enough housing to keep up with demand.

Posted by: Josh Lehner | April 6, 2017

Job Polarization in Oregon, 2016 Update

Last week we took a look at the newly released occupational data and job polarization across the U.S. Today is a relatively quick graphical update for Oregon and some of our regions across the state. At this point I don’t think there is a whole lot more to add in terms of the narrative. Please see last week’s post and our previous report for a more complete look. As such, I’ll get straight to the charts.

The relative pattern of job growth being concentrated among both low- and high-wage occupations continued in 2016. Middle-wage jobs are growing again, but to date they are only about half-way back to where they were prior to the Great Recession.

While middle-wage job growth slowed nationwide in 2016, that was not the case in Oregon where growth picked up slightly, which is encouraging. Overall Oregon’s job growth outpaces the typical state, as we always do in expansion, but we are seeing this across all three wage categories.

 

Since our original report, there have been a few slight tweaks to the methodology we use. We are always looking to improve. It does not change the fundamental trends or outcomes, however we are working to refine our analysis. Below you can see each individual occupational group, how we classify it into the wage categories and its growth in recent years. You will notice that the occupational groups seeing the largest employment declines, and slower recoveries, are dominated by the various middle-wage jobs. You can also see why we talk about how polarization impacts both men and women here in Oregon.

Our office generally sticks to the trends based on wages. It’s an easy and digestible way to discuss the data. However what is really driving the underlying trends, and where the academic literature comes in, is based on the types of tasks and duties performed by these different occupations. As we write in our report:

Technological investments often involve the automation of what may be termed routine work, allowing each individual worker to be more productive and allowing firms to get by with fewer workers. […] routine jobs have sufficiently well-defined tasks that can be satisfactorily completed by a computer program. […] examples include bookkeeping, clerical work and repetitive production tasks (manufacturing). […] use of modern software allows each bookkeeper to serve more clients than in the past. Similarly, for occupations where globalization is a contributing factor, routine jobs can be performed abroad by workers who are willing to accept lower wages and who possibly have less education or less experience.

Relative to routine occupations, jobs that require abstract thinking and decision making and/or in-person interactions and communications are more difficult to replace. For example, the face-to-face interaction required for lower wage consumer service occupations (e.g. hairdressers, and childcare workers) make automation or offshoring of these services nearly impossible with current technology. Also, occupations that require specialized capital stocks or access to natural resources face less pressure than do routine occupations.

Lastly, we know the impact of polarization is not uniform across the state. Some areas are seeing stronger growth then others. High-wage job growth is strongest in our urban areas. That said, even in our rural areas the relative pattern of job growth fits the polarization story. Rural high-wage jobs are leading the recovery for rural Oregon even if rural Oregon’s overall recovery has trailed urban Oregon.

Posted by: Josh Lehner | March 31, 2017

Job Polarization, 2016 Update

Job polarization, where the majority of the job gains are concentrated in both the low- and high-wage categories, is best seen in the occupational data. The U.S. Bureau of Labor Statistics releases occupational data once a year, as opposed to industry data every month. The 2016 occupational data was released today, March 31st. What follows is a brief update on polarization in the U.S. Next week I will dive into the state level data. See our office’s 2013 report for a more thorough and complete look.

Overall, the same job polarization trends we have seen this century continued in 2016. Job growth was strongest among low- and high-wage occupations. The good news is that middle-wage jobs are also growing, however they took a step back in growth in 2016. This slowdown is concentrated among the traditional blue-collar occupations. Installation, Maintenance and Repair jobs, and Transportation jobs saw slower growth. Construction did too which is interesting given the ongoing (slow) housing recovery. Production jobs — essentially the manufacturing jobs that do the manufacturing — saw very little growth. Some of this is to be expected given the fallout of the oil crash to end 2014 and the strong U.S. dollar.

The second chart shows the actual change in employment by wage group since the start of the Great Recession. The biggest problem with job polarization is that middle-wage jobs decline the most in recession and don’t come back all the way in expansion, particularly as a share of the economy. Job opportunities for middle-wage jobs is a declining share over time, particularly since the turn of the century. That said, middle-wage jobs themselves don’t decline forever. As the Federal Reserve Bank of New York noted last year, the actual number of jobs created were strongest among middle-wage occupations in recent years. This is good news, even as growth rates remain lower for such jobs.

When it comes to middle-wage jobs there are a few important things to keep in mind. First, they impact both men and women, particularly those without college degrees. While many of us know the story of the manufacturing decline hurting men without college degrees, the same thing is true for women and administrative and office support occupations. In fact, here in Oregon the relative decline of office support jobs for women and production jobs for men have been equal in recent decades.

Second, the outlook varies depending upon which middle-wage job you are looking at. Some middle-wage jobs are driven by population gains. The more people you have the larger the demand for artists, clergy, construction workers, police officers, plumbers, teachers, and the like. Locations with stronger population gains have seen better growth in these types of middle-wage jobs. The other types of middle-wage jobs can broadly be considered business support occupations. From our report:

Administrative Support, [some] Sales and Transportation all act as suppliers of labor and services to other businesses or employees. With increases in business operations, including headquarters, the demand for such occupations will increase even if technological advancements continue to eliminate a portion of these jobs. This provides an opportunity for continued investment into activities that foster both an entrepreneurial business climate and also recruitment and retention efforts of existing firms. The loss of significant headquarter operations in Oregon over recent decades has decreased the demand for some of these business support firms and workers.

Finally, if you want to slice the data differently, you can look at changes between manual and cognitive, and routine and non-routine jobs

In the short-term, middle-wage jobs are expected to continue to grow along with the economy. Some cyclical rebound is still likely/needed for both construction workers and teachers in particular. However, over the longer term, the relative share of jobs is expected to continue to decline as high- and low-wage jobs see stronger growth.

I will have a lot more on job polarization here in Oregon next week and plan on diving into other states in the near future, including an update on other measures like state level Total Employment Gaps.

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